February 11, 1999 | Read Time: 2 minutes
A ruling by the I.R.S. could make it less attractive for wealthy people to leave assets from an individual retirement account to a charitable remainder unitrust, some experts say.
The ruling, which lays out in complex fashion how the service may treat various types of income derived from retirement plans, makes it much more difficult for heirs who receive income from such trusts to take an income-tax deduction for estate taxes paid on the I.R.A. money deposited in the trust.
Charitable remainder unitrusts make regular payments to a beneficiary based on a fixed percentage of the fair market value of the trust’s assets. When the beneficiary dies or payments from the trust otherwise expire, the remainder of the trust goes to charity.
The I.R.S.’s decision came in a private-letter ruling (9901023). Such rulings deal with issues raised in a specific case and cannot be cited as legal precedent, though they give an indication of the service’s thinking.
The case involved a parent who used money from a retirement plan to create a charitable remainder unitrust. The trust was set up to pay an income to two heirs for up to 20 years, then give the remaining assets to a foundation.
Christopher Hoyt, a University of Missouri law professor, says the ruling makes it difficult for the heirs to claim an income-tax deduction for any of the estate taxes that were paid on the retirement-plan assets.
He also says that had the retirement money been given directly to the heirs rather than to the charitable-remainder trust, they would have been able to take an income-tax deduction for the estate taxes.
Mr. Hoyt says the ruling could hurt charities by discouraging wealthy individuals from putting their I.R.A.’s or other retirement assets into charitable remainder trusts.
But some experts believe that for certain wealthy people with large retirement balances, a charitable remainder unitrust still may be a good option, especially in cases where tax laws require that all of their retirement-plan assets be distributed immediately upon their deaths.
